Capital expenditure budgets rise, financial and supply chain executives increasing focus on HIT and patient safety, accord

March 2011 edition of the Premier healthcare alliance’s Economic Outlook also focuses on the globalization of U.S. healthcare

CHARLOTTE, N.C.--(BUSINESS WIRE)-- Hospitals continue to see capital expenditure budgets increase while financial and supply chain executives are placing a greater focus on healthcare information technology (HIT) and patient safety, according to a survey published in the Premier healthcare alliance’s March 2011 Economic Outlook analysis.

Survey results

Seventy-two percent of survey respondents, the majority of which were chief financial officers, supply chain executives and pharmacy directors, indicated that capital budgets for 2011 remained flat or increased compared to 2010. Overall, 46 percent of respondents suggested an increase in spending, up from 42 percent in September 2010. Twenty-eight percent of respondents suggested a decrease in capital budget expenditures, down from 32 percent in September.

Survey results also suggest that the focus of financial and supply chain executives has extended beyond costs. When asked which areas will likely have the greatest impact on their organization's supply chain over the next year, more than 42 percent suggested HIT, patient safety and infection prevention initiatives, and comparative effectiveness research.

“The potential impact of health reform is causing healthcare executives who have traditionally focused on price points to now consider the impact of patient safety and technology on the supply chain,” said Premier Purchasing Partners President Mike Alkire.

When asked in which areas they expect to make the largest capital investments or expansions over the next 12 months, 34 percent chose HIT and telecommunications while 29 percent selected infrastructure, to include construction.

March 2011 Economic Outlook

The semiannual Economic Outlook analysis helps Premier’s 2,500 hospital and health system members better estimate supply cost inflation during their budget processes, projecting rates of inflation for the ensuing 12 months.

According to the March 2011 edition, annual market inflation rates will increase on average between 1.5 percent and 5.6 percent across categories such as cardiovascular services, facilities, imaging and nursing. Premier's existing contracts, excluding foodservice and pharmacy, are expected to increase by about 0.75 percent on average in the next year, lower than overall market increases which are predicted to be an average of 2.9 percent during this time frame.

The March 2011 Economic Outlook also includes insights from the following healthcare leaders:

  • A view from the top: How Premier's financial leaders are realigning priorities amidst reform and recovery; Katherine Arbuckle, senior vice president and CFO, Bon Secours Health System, Inc.; Dennis Dahlen, senior vice president and CFO, Banner Health; and Kenneth W. Libby Jr., FHFMA, CPA, vice president of finance and CFO, Community Memorial Healthcenter.
  • Data integration: A win-win for patients and providers; Paul Grundy, M.D., director of healthcare transformation, IBM.
  • Healthcare distribution market globalization: A tangible and growing impact on the U.S. supply chain; Eric Coldwell, managing director, Robert W. Baird & Co. Inc.
  • Made in America: A new competitive landscape for healthcare; Daniel DiMicco, president and CEO, Nucor Corporation.

Effect of globalization of U.S. healthcare

According to the analysis, there have been dramatic upticks in pricing for raw materials that are foundational to many healthcare products, including oil (up 28 percent in the last 12 months) and cotton (up 138 percent in the last 12 months). The increases are largely due to political instability and increased demand for raw materials from emerging nations.

“This is the current reality of the globalization trend,” Alkire continued. “When we source from all over the globe, we’re at the mercy of everything from foreign demand to economic development swings to weather trends, all of which we in the U.S. have almost no control over.”

The issue of globalization can also affect the quality of patient care. For example, today more than 90 percent of all nutritional supplements, face masks, exam gloves, enzymes and amino acids are manufactured overseas. Even basic items are produced outside the United States. For example, China manufactures two-thirds of the world’s aspirin and 70 percent of its penicillin, and is poised to become the sole supplier within a few years.

“In the case of a global pandemic, we are concerned that the U.S. would not get the amount of supplies needed to support our demand,” Alkire said. “But we need to question whether the healthcare industry is actually promoting this type of behavior. We continually see suppliers dictating demand, rather than the other way around, and we have done little to change this dynamic."

One solution to curb this trend is sourcing to specification, which involves working with clinicians, documenting the product attributes that are medically necessary, and then working with manufacturers to create a product that only includes those features. The goal is to inject rationality into the marketplace by making better, more informed purchasing decisions that put the product’s end-user in the driver’s seat, factor in the cost of safety, and carefully consider the need for a diverse network of supply alternatives.

About the Economic Outlook

Premier releases a new analysis every six months to ensure projections reflect changing market conditions. The analysis helps alert Premier alliance members to market forces that could drive price changes in the coming months and years. It compares Premier’s contractual price protection against supplier price inflation estimates to deliver forecasted estimates by service line.

Premier polled approximately 500 of its contracted suppliers to obtain market inflation estimates. Additional inflation estimates by category include clinical laboratory services, foodservice, IT/telecommunications, pharmacy, support services, surgical services and women and children's.

The analysis includes predictors of price inflation through the Medical/Surgical Inflationary Calculator located in Premier's Supply Chain Advisor® and the Premier Drug Budget Tool, available in the PharmacyConnect® section of Premier’s website. The online calculators allow members to estimate their facility’s total inflation impact by taking into account individual utilization patterns and the price protection offered by Premier's contracts.

About the Premier healthcare alliance, Malcolm Baldrige National Quality Award recipient

Premier is a performance improvement alliance of more than 2,500 U.S. hospitals and 73,000-plus other healthcare sites using the power of collaboration to lead the transformation to high quality, cost-effective care. Owned by hospitals, health systems and other providers, Premier maintains the nation's most comprehensive repository of clinical, financial and outcomes information and operates a leading healthcare purchasing network. A world leader in helping deliver measurable improvements in care, Premier has worked with the Centers for Medicare & Medicaid Services and the United Kingdom's National Health Service North West to improve hospital performance. Headquartered in Charlotte, N.C., Premier also has an office in Washington. Stay connected with Premier on Facebook, Twitter and YouTube.


Premier healthcare alliance
Alven Weil, 704-816-5797

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